A look inside the finances of Dominion Diamonds, the mine company now under court protection
The company has kept finances private since 2017, but opened up its books for the courts this week
When the Washington Companies, a U.S.-based conglomerate bought Dominion Diamonds in 2017, a curtain fell over one of the world's largest diamond companies and significant employers in the Northwest Territories.
After the sale, Dominion became a private business and faced far fewer requirements on what it had to share with the public, and was able to operate with little scrutiny as it ran the Ekati mine and a 40 per cent stake in Diavik, two of the territory's three diamond mines.
For the past three years, the company hummed along, freed from the obligation to report on its business to shareholders or the public.
But that changed this week, as the company filed for creditor protection when it became clear it could not pay its debts.
Kristal Kaye, the company's chief financial officer laid out the situation in nearly 150 pages of court documents that offer a glimpse into the international diamond trade, Dominion's financial situation, and spell out how the company contributes to the Northwest Territories' economy.
How does Dominion Diamond make money?
The process begins in the Northwest Territories, at Ekati, and to a lesser extent at Diavik, where diamonds are pulled out of the ground. From there, they head to Mumbai, India, for sorting and processing. Then, they're shipped to Antwerp, Belgium, the centre of the diamond world, where they're sold to polishing companies, traders and other clients at one of 10 sales a year.
As of April 21, the company had what it says is $180-million US worth of diamond inventory stuck somewhere within that supply chain.
The issue for Dominion is that it doesn't turn a profit on a Northwest Territories' diamond until it's sold in Belgium. That's why COVID-19 travel and commercial restrictions have hit it so hard — as long as the Belgian markets remain closed, it is not making a dime.
Why couldn't it pay its bills?
By any measure, Dominion is a major company. It owns $1.38 billion US in assets, according to court documents, and bills itself as one of the world's largest producers of raw diamonds.
By the company's own admission, last year was a 'challenging year,' even before COVID-19 led to its current crisis, according to its 2019 socio-economic report, included in court documents.
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While the company grossed $151.3 million US in 2019, that's still $133 million US less than the $284.3 million it grossed in 2018. The court documents do not explain the difference in year-over-year earnings, but analysts have noted the diamond industry has been mired in a slump.
Meanwhile Dominion still has $1.2 billion US in liabilities on its books, including biweekly payments of about $15 million CDN to Rio Tinto, its partner in Diavik, it owes $43-million US to its bankers, and has a $550 million US bond due in 2022.
Credit ratings agencies have cast doubt on whether that bond will be repaid.
It was an upcoming $20 million US interest payment on that bond due May 1 that forced the company to seek creditor protection. If it missed the payment it would have triggered a cascade of defaults that would have likely led to bankruptcy, according to the documents.
Still, over the past two years, Dominion has cut costs by more than $127 million US, by shedding staff, improving maintenance and having company employees do some work that was previously done by contractors.
How much is it spending in the N.W.T.?
Though long-acknowledged as one of the main engines in the Northwest Territories' economy, it's never exactly been clear how much Dominion Diamond spent in the territory — until now.
Overall, the company spent $524 million CDN with northern businesses in the last two years, including about $5 million CDN per year through impact benefit agreements signed with Indigenous governments.
It holds two royalty agreements with the territorial government. For Ekati, the company has paid out about $4.8 million CDN since Nov. 1, 2017. In that same time period, it paid $13.8 million for its share in Diavik.
There's also security for if the mine closes unexpectedly, the government has $388 million CDN in securities to cover cleanup and remediation costs. It's an outcome the company says it doesn't want, but may be needed if it cannot emerge from this court-ordered creditor protection.